Tag Archives: Estimating

It’s not uncommon that clients ask for a forecast of construction spending for the next three years. It is less common that forecasters explain the reliability of the data in a forecast.

To predict the reliability of the data in a forecast, several assumptions must be stated.

Cash flow curves are generated to predict the spending pattern. These are assumed to be reliable. The cash flows are generated from monthly data releases for New Construction Starts. The Starts data is assumed reliable. However, major sector data is revised in the following month and again in the same month the following year. These revisions are incorporated when released, but nonresidential building markets revisions are not posted at the same frequency. That data becomes available in the 4th quarter of the following year. It is updated at that time. The analytical methods are assumed to be reliable.

The primary driver of the spending forecast is New Construction Starts. Care must be taken to use Starts properly. Starts are sometimes misinterpreted in common industry forecasting articles. Starts dollar values represent a survey of about 50% to 70% of industry activity and that varies by market type, therefore Starts dollar values cannot ever be used directly to indicate the volume of spending. Also, Starts do not directly indicate changes in spending per month or per year. Projected starts data cannot be used to directly forecast expected construction volume. Only by including an expected duration for all Starts and producing a forecast Cash Flow from Starts data can the expected pattern of future backlog and spending be developed.

For short duration residential spending, single-family residential and renovations work, approximately 75% of the spending occurs in the current year and 20% in the following year.

For long duration residential spending, typical of multifamily residential, approximately 50%-55% of the spending occurs in the current year, 35%-40% in the next year and only 5%-10% occurs two years out.

For nonresidential buildings spending long duration jobs can sometimes have a 5 to 6-year schedule. On average most years have at least some projects start that will be under construction for 4 years. For an entire year’s worth of starts, approximately 20% of the spending occurs in the year started, 50% in the next year, 25% in the third year and only 5% in the fourth year or later year. This also means that nonresidential spending growth in 2019 is still being affected by starts from 2016.

Non-building Infrastructure spending has many of the longest duration jobs. Some job starts in the last two years have 6 to 8-year duration. Many years have at least some projects start that will be under construction for 5 years. For the entire year of starts, approximately 15% of the spending occurs in the year started, 40% in the next year, 33% in the third year and 12% in the fourth year or later year. This also means that non-building Infrastructure spending growth in 2019 is still being affected by jobs that started in 2015.

75%-80% of all Nonresidential Buildings spending within the year will be generated from projects in starting backlog.

80%-85% of all Non-Building Infrastructure spending within the year will be generated from projects in starting backlog.

70% of All Residential spending within the year is generated from new starts, but this is weighted because 85% of all residential work is short duration single family and renovation work.

65% on long duration Multifamily Residential spending within the year will be generated from projects in starting backlog.

Multifamily residential has a longer duration and a much greater percentage of spending comes from backlog. But, due to the shorter duration of projects, about 75% of single family and residential renovation spending within the year is generated from new starts. Unlike nonresidential, backlog does not contribute nearly as much short-term residential spending within the year. For that reason, the reliability of SF and Reno residential work drops more quickly than all other types.

For any future forecast month, the most information is in hand the month before. For example, in the month of October the forecast for November includes a projected cash flow which is based 96%-98% on actual projects. Only the small amount from new projects that start in November is predicted. Assessing the amount of actual data versus the amount of predicted data gives an indication of how much weight can be placed on the forecast. Obviously, the balance of actual versus predicted data changes the further out in time we view the forecast.

From the current date, the forecast for the next month includes 95%-98% actual data. Only the cash flow curve and the predicted duration affects the reliability of the forecasts and even that is minor.

Twelve months from the current date, the forecast is more dependent on predicted starts and therefore the percentage of actual data drops. The Non-building Infrastructure forecast includes 85% actual data. The Nonresidential Buildings forecast includes 80% actual data. The Residential forecast includes 30%-40% actual data.

Two years out from the current date, the forecast is far more dependent on predicted starts. The Non-building Infrastructure forecast includes 45% actual data. The Nonresidential Buildings forecast includes 30% actual data. The actual data in a residential forecast drops to near zero with very little remaining in backlog and that only from multifamily.

Three years out from the current date, the forecast is near entirely dependent on predicted starts. The Non-building Infrastructure forecast includes about 15% actual data. The Nonresidential Buildings forecast is approaching zero. The residential forecast has already be reliant on predicted data for the past year.

To put this in perspective, let’s assume a Jan 1, 2019 forecast which includes all actual construction starts through Dec 2018. We’ll look at the forecast for 2020 and 2021. Also, we’ll base the volume of actual data on each sector’s actual data and its share of total construction spending. Non-building Infrastructure has the most actual data long term, but it is the smallest share of total construction. Residential has the least long-term data but is the largest share of total construction.

In our Jan. 1, 2019 forecast, the forecast for the year 2020, the period only 12 to 24 months out, actual data drops from 60% at the start of the year to 20% at the end. So, the 2020 forecast includes only an average of 40% actual data. In the forecast for the year 2021, the period from 24 to 36 months out, the actual data drops from 20% to 4% over the course of the year. Very little actual data is influencing the forecast.

Three years out from the current date the reliability of the forecast is dependent on the economic outlook of the developer and the predictive methodology of the analytic tools.

It’s good to know, when you are looking at a forecast that projects three years out past the current year, there is nearly no actual data in that forecast. It’s all predicted.

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When construction is very actively growing, total construction costs typically increase more rapidly than the net cost of labor and materials. In active markets overhead and profit margins increase in response to increased demand. These costs are captured only in Selling Price, or final cost indices.

General construction cost indices and Input price indices that don’t track whole building final cost do not capture the full cost of inflation on construction projects.

To properly adjust the cost of construction over time you must use actual final cost indices, otherwise known as selling price indices.

ENRBCI and RSMeans input indices are prefect examples of commonly used indices that DO NOT represent whole building costs, yet are widely used to adjust project costs. An estimator can get into trouble adjusting project costs if not using appropriate indices. This plot of cost indices for nonresidential buildings shows how input indices did not drop during the 2008-2010 recession while all other final cost indices dropped.

CPI, the Consumer Price Index, tracks changes in the prices paid by urban consumers for a representative basket of goods and services, including food, transportation, medical care, apparel, recreation, housing. This index in not related at all to construction and should never be used to adjust construction pricing. Historically, Construction Inflation is about double the CPI, but for the last 5 years construction inflation averages 3x the CPI.

Producer Price Index (PPI) Material Inputs costs to all construction (which exclude labor) are up +4.2% in 2017. More specific input costs for nonresidential structures in 2017 are up 4.3%. Infrastructure cost are up over 5% and single-family residential inputs are up 4.3%. But material inputs accounts for only a portion of the final cost of constructed buildings.

Labor input is currently experiencing cost increases. When there is a shortage of labor, contractors may pay a premium to keep their workers. Unemployment in construction is the lowest on record. The JOLTS ( Job Openings and Labor Turnover Survey) is at or near all-time highs. A tight labor market will keep labor costs climbing at the fastest rate in years.

Inflation can have a dramatic impact on the accuracy of a construction budget. Usually budgets are prepared from known current costs. If a budget is being developed for a project whose midpoint of construction costs is two years in the future, you must carry an appropriate inflation factor to represent the expected cost of the building at that time.

The level of construction activity has a direct influence on labor and material demand and margins and therefore on construction inflation. Nonresidential Buildings and Non-building Infrastructure backlog are both at all-time highs. 75% to 80% of all nonresidential spending within the year comes from starting backlog. In 2018 spending from nonresidential backlog will be up nearly 8%-10%. In the last three years nonresidential buildings spending from backlog is up more than 25%, non-building infrastructure up only 10%.

Most spending for residential comes from new starts. Residential new starts in Q1-2017 reached an 11 year high. For Q1-2018 starts are up another 4% over Q1-2017. Spending from new starts is up 100% in the last 6 years, 30% in the last 3 years.

Current indications are that 2019 backlog will be up 6%-8% across all sectors.

Taking into account the current (Jan 2018 12 mo) CPI of 2% and the most recent 5 years ratio of Construction Inflation to CPI, along with accelerated cost increases in labor and material inputs and the high level of activity in construction markets, I would consider the following forecasts for 2018 inflation as minimums with potential to see higher rates than forecast.

Residential construction saw a slowdown in inflation to only +3.5% in 2015. However, the average inflation for five years from 2013 to 2017 is 5.8%. It peaked at 8% in 2013. It climbed back over 5% for 2016 and reached 5.8% in 2017. Midyear 2018 indexes are between 5.0% and 6.5%. Anticipate residential construction inflation for 2018 at least 5% to 6%.

Nonresidential Buildings indices have averaged 4% to 4.5% over the last five years and all have reached over 5% in the last three years. Nonresidential buildings inflation totaled 18% in the last four years. My forecast shows nonresidential buildings spending in 2018 will reach the fastest rate of growth in three years, which historically has led to accelerated inflation.

Recent news of a steel tariff needs to be addressed as an added factor to inflation. In another article on this blog, (see steel cost increase), I calculated the 25% tariff on steel would cost nonresidential buildings 1%. Some Infrastructure could be much more, i.e., bridges 4-5%. Residential impact would be small. A 25% increase in mill steel could add 0.65% to final cost of building just for the structure. It adds 1.0% for all steel in a building. If your building is not a steel structure, steel still potentially adds 0.35%.

Anticipate construction inflation for nonresidential buildings for 2018 and 2019, excluding steel impact, of 5% to 5.5%, rather than the long-term growth average of 4%. Adjust for steel impact.

Following Graph updated 9-11-18 – Several indices Q1 or Q2 2018 information has been updated. Reliable nonresidential buildings selling price indexes have been over 4% since 2015. Currently some indexes are forecasting inflation over 5% for 2018. One index is now forecasting 6.5%. Construction Analytics forecast (line) for 2018 is currently 4.75%. This may move higher due to the impact of tariffs which may not yet be fully reflected in any indices.

Non-building infrastructure indices are so unique to the type of work that individual specific infrastructure indices must be used to adjust cost of work. The FHWA highway index increased 17% from 2010 to 2014, dropped 2% in 2015-2016, then increased 2% in 2017. Inflation for refineries and petrochemical facilities has dropped 5% in the last 4 years.

Input costs to infrastructure are down slightly from the post-recession highs, but most costs have increased in the last year. Input cost to Highways are up 4.7% and to the Power sector are up 5.8% in 2017. Work volume in Transportation and Pipeline projects is increasing rapidly in 2017 and 2018. Expect inputs in these markets to show large increases in 2018.

Infrastructure indices registered 2% to 4% gains in 2017. Anticipate a minimum of 3% to 4% inflation for 2018 with the potential to go higher in rapidly expanding markets. Tariff impact adds to this. Refer to Infrastructure Indices.

This collection of Indices is published in conjunction with this linked commentary

Construction Cost Indices come in many types: Final cost by specific building type; Final cost composite of buildings but still all within one major building sector; Final cost but across several major building sectors (ex., residential and nonresidential buildings); Input prices to subcontractors; Producer prices and Select market basket indices.

Residential, Nonresidential Buildings and Non-building Infrastructure Indices developed by Construction Analytics, (in BOLD CAPS), are sector specific selling price composite indices. These three indices represent whole building final cost and are plotted in Building Cost Index – Construction Inflation, see below, and also plotted in the attached Midyear report link. They represent average or weighted average of what is considered the most representative cost indicators in each major building sector. For Non-building Infrastructure, however, in most instances it is better to use a specific index to the type of work.

2-12-18 plots updated to Dec 2017 data, includes revisions to historic Infrastructure. The following plots are all the same data. Different time spans are presented for ease of use.

All actual index values have been recorded from the source and then converted to current year 2017 = 100. That puts all the indices on the same baseline and measures everything to a recent point in time, Midyear 2017.

All forward forecast values where-ever not available are estimated and added by me.

Not all indices cover all years. For instance the PPI nonresidential buildings indices only go back to years 2004-2007, the years in which they were created. In most cases data is updated to include December 2017.

June 2017 data had significant changes in both PPI data and I H S data.

December 2017 data had dramatic changes in FHWA HiWay data.

SEE BELOW FOR TABLES

When construction is very actively growing, total construction costs typically increase more rapidly than the net cost of labor and materials. In active markets overhead and profit margins increase in response to increased demand. When construction activity is declining, construction cost increases slow or may even turn to negative, due to reductions in overhead and profit margins, even though labor and material costs may still be increasing.

Selling Price, by definition whole building actual final cost, tracks the final cost of construction, which includes, in addition to costs of labor and materials and sales/use taxes, general contractor and sub-contractor overhead and profit. Selling price indices should be used to adjust project costs over time.

R S Means Index and ENR Building Cost Index (BCI) are examples of input indices. They do not measure the output price of the final cost of buildings. They measure the input prices paid by subcontractors for a fixed market basket of labor and materials used in constructing the building. ENR does not differentiate residential from nonresidential. RS Means is specifically nonresidential buildings only. These indices do not represent final cost so won’t be as accurate as selling price indices. RS Means subscription service provides historical cost indices for about 200 US and 10 Canadian cities. RSMeans 1960-2018 CANADA Keep in mind, these indices do not include markup for competitive conditions. FYI, the RS Means Building Construction Cost Manual is an excellent resource to compare cost of construction between any two of hundreds of cities using location indices.

Rider Levett Bucknall Actual Cost Index published in the Quarterly Cost Reports found in RLB Publications for nonresidential buildings only, represents final cost of building, selling price. Report includes cost index for 12 US cities and cost $/SF for various building types in those cities. Also includes cost index for Calgary and Toronto.

Bureau of Labor Statistics Producer Price Index only specific PPI building indices reflect final cost of building. PPI cost of materials is price at producer level. The PPIs that constitute Table 9 measure changes in net selling prices for materials and supplies typically sold to the construction sector. Specific Building PPI Indices are Final Demand or Selling Price indices.

PPI BONS Other Nonresidential Structures includes water and sewer lines and structures; oil and gas pipelines; power and communication lines and structures; highway, street, and bridge construction; and airport runway, dam, dock, tunnel, and flood control construction.

Beck Biannual Cost Reportdevelops indices for five major cities plus average. I did not see specifically if the index is or is not a composite of residential and nonresidential buildings. It can be used as an indicator of the direction of cost, but may be better used in conjunction with other more specific sector selling price indices.

Mortenson Cost Indexis the estimated cost of a representative nonresidential building priced in six major cities and average.

Other Indices not included here:

Consumer Price Index (CPI) issued by U.S. Gov. Bureau of Labor Statistics. Monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services, including food, transportation, medical care, apparel, recreation, housing. This index in not related at all to construction and should not be used to adjust construction pricing.

Leland Saylor Cost Index Clear definition of this index could not be found, however detailed input appears to represent buildings and does reference subcontractor pricing. But it could not be determined if this is a selling price index.

Sierra West Construction Cost Index is identified as a selling price index but may be specific to California. This index may be a composite of several sectors. No online source of the index could be found, but it is published in Engineering News Record magazine in the quarterly cost report update.

Vermeulens Construction Cost Indexcan be found here. It is described as a bid price index, which is a selling price index, for Institutional/Commercial/Industrial projects. That would be a nonresidential buildings sector index. No data table is available, but a plot of the VCCI is available on the website. Some interpolation would be required to capture precise annual values from the plot. The site provides good information.

How to use an index: Indexes are used to adjust costs over time for the affects of inflation. To move cost from some point in time to some other point in time, divided Index for year you want to move to by Index for year you want to move cost from. Example : What is cost today for a nonresidential building that was built in 2013? Divide Index for 2018 by index for 2013 = 104.5/84.7 = 1.234. Cost of building in 2013 times 1.234 = cost of same building in 2018. Costs should be moved to midpoint of construction. Indices posted here are at middle of year and can be interpolated to get any other point in time.

All forward forecast values where-ever not available are estimated and added by me.

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General construction cost indices and Input price indices that don’t track whole building final cost do not capture the full cost of escalation in construction projects. To properly adjust the cost of construction over time you must use actual final cost or selling price indices.

Inflation in construction acts differently than consumer inflation. When there is more work available, inflation increases. When work is scarce, inflation declines. A very large part of the inflation is margins, wholesale, retail and contractor. When nonresidential construction was booming from 2004 through 2008, nonresidential inflation averaged almost 8%/year. When residential construction boomed from 2003 to 2005, inflation in that sector was 10%/year. But from 2009 through 2012 we experienced deflation, the worst year being 2009. Residential construction experienced a total of 17% deflation from 2007 through 2011. From 2008 to 2010, nonresidential buildings experienced 10% deflation in two years.

2-12-18 plots updated to Dec 2017 data. The following plots are all the same data. Different time spans are presented for ease of use.

Since 1993, the 25-year long-term annual construction inflation for nonresidential buildings has averaged 3.5%, even when including the recessionary period 2007-2011. The long-term average inflation is 4% for the 20 non-recessionary years during that period. During rapid growth period of 5 years from 2004-2008, inflation averaged 8% per year. Since 2014, nonresidential buildings inflation has been over 4%/yr., averaging 4.3%/yr. for the last 5 years with a high of 4.7% in 2018.

Residential, from 2007- 2011 experienced 5 consecutive years of deflation, down 20%. In the 4-year boom just prior to that, 2003-2006, inflation averaged 9% per year. Residential inflation snapped back to 8.0% in 2013. From 2016 through 2018 it’s been between 5% and 6%.

Spending growth, up 41% in the four-year period 2012-2015, exceeded the growth during the closest similar four-year periods 2003-2006 (37%) and 1996-1999 (36%), which were the two fastest growth periods on record with the highest rates of inflation and productivity loss. Growth peaked at +11%/year in 2014 and 2015, exceeded only slightly by 2004-2005.

Spending growth slowed to 7.0% in 2016, however, Construction spending growth for the four-year period 2013-2016 still totals 40% and remains near equal with the four-year high. It’s expected, after final revisions to 2017 are posted (in June 2019), that 2017 spending will increase to 5+% and maintain a consistently high four-year level of spending above pre-recession levels.

Producer Price Index (PPI) Material Inputs (excluding labor) costs to new construction went up +2.4% in 2016 after a downward trend from +5% in 2011 led to decreased cost of -2.2% in 2015, the only negative cost for inputs in the past 20 years. Inputs costs to all construction are up +4.2% in 2017. More specific input costs, nonresidential structures in 2017 are up 4.3%, infrastructure cost are up over 5% and single-family residential inputs are up 4.3%. But material inputs accounts for only a portion of the final cost of constructed buildings. Through August 2018, nonresidential building input costs are up 6% and residential up 7%.

Labor input is currently experiencing cost increases. When there is a shortage of labor, contractors may pay a premium to keep their workers. All of that premium may not be picked up in wage reports. Potential labor shortages in an area might result in +8% to +10% inflation on labor cost just over the last two years. Unemployment in construction is the lowest on record. A tight labor market will keep labor costs climbing at the fastest rate in years.

Nationally tracked indices for residential, nonresidential buildings and non-building infrastructure vary to a large degree. When the need arises, it becomes necessary that contractors reference appropriate sector indices to adjust for whole building costs.

ENRBCI and RSMeans input indices are prefect examples of commonly used indices that DO NOT represent whole building costs, yet are widely used to adjust project costs. An estimator can get into trouble adjusting project costs if not using appropriate indices. This plot of cost indices for nonresidential buildings shows how input indices did not drop during the 2008-2010 recession while all other final cost indices dropped.

CPI, the Consumer Price Index, tracks changes in the prices paid by urban consumers for a representative basket of goods and services, including food, transportation, medical care, apparel, recreation, housing. This index in not related at all to construction and should never be used to adjust construction pricing. Historically, Construction Inflation is about double the CPI. However for the last 5 years it averages 3x the CPI.

Taking into account the current (Jan 2018 12 mo) CPI of 2% and the most recent 5 years ratio, along with accelerated cost increases in labor and material inputs and the high level of activity in markets, I would consider the following forecasts for 2018 inflation as minimums with potential to see higher rates than forecast.

Residential construction, from 2007- 2011, experienced five consecutive years of deflation, down 20%. In the 4-year boom just prior to that, 2003-2006, inflation averaged +9% per year. Residential construction inflation saw a slowdown to only +3.5% in 2015. However, the average inflation for five years from 2013 to 2017 is 6%. It peaked at 8% in 2013. It climbed back over 5% for 2016 and reached 5.8% in 2017. At mid 2018, residential final cost inflation indexes are 5% and 6.5%. Anticipate residential construction inflation for 2018 and 2019 between 5% and 6%.

Nonresidential Buildings inflation, during the rapid growth period of five years from 2004-2008, averaged 8% per year. Inflation averaged 4.2% per year for the 4 years 2014-2017.

Several indices for Nonresidential Buildings have averaged 4% to 4.5% over the last five years and have reached over 5% in the last three years. Nonresidential buildings inflation totaled 18% in the last four years. Input indices that do not track whole building cost would indicate inflation for those four years at only 10%, much less than real final cost. For a $100 million project escalated over those four years, that’s a difference of $8 million, potentially underestimating cost. My forecast shows nonresidential buildings spending in 2018 will reach the fastest rate of growth in three years, which historically leads to accelerated inflation. Anticipate construction inflation for nonresidential buildings for 2018 and 2019 between 4.5% to 5.5%, rather than the long term average of 3.5% to 4.0%.

Non-building infrastructure indices are so unique to the type of work that individual specific infrastructure indices must be used to adjust cost of work. The FHWA highway index increased 17% from 2010 to 2014, dropped 2% in 2015-2016, then increased 2% in 2017. The IHS Pipeline and LNG indices are down 25% from 2014 to 2017. Coal, gas, and wind power generation indices have gone up only 6% in seven years. Refineries and petrochemical facilities have dropped 5% in the last 4 years. Input costs to infrastructure are down slightly from the post recession highs, but most have increased in the last year. Input cost to Highways are up 4.7% and to the Power sector are up 5.8% in 2017. Work in Transportation and Pipeline projects is increasing rapidly in 2017 and 2018.

Infrastructure indices registered 2% to 4% gains in 2017. Anticipate a minimum of 3.5% to 4.5% inflation for 2018 with the potential to go higher in rapidly expanding markets, such as power or highway.

This plot for nonresidential buildings only shows bars representing the predicted range of inflation from various sources with the line showing the composite final cost inflation. Note that although 2015 and 2016 have a low end of predicted inflation of less than 1%, the actual inflation is following a pattern of growth above 4%. The low end of the predicted range is almost always established by input costs, while the upper end of the range and the actual cost are established by selling price indices.

graph updated 9-11-18

In every estimate it is always important to carry the proper value for cost inflation. Whether adjusting the cost of a recently built project to predict what it might cost to build a similar project in the near future or adding an escalation factor to the summary of an estimate for a project with a midpoint 2 years out, or answering a client question, “What will it cost if I delay my project start by one year?”, whether you carry the proper value for inflation can make or break your estimate.

Long term construction cost inflation is normally about double consumer price inflation (CPI).

Since 1993 but taking out 2 worst years of recession (-8% to -10% total for 2009-2010), the 20-year average inflation is 4.2%.

Average long term (30 years) construction cost inflation is 3.5% even with any/all recession years included.

In times of rapid construction spending growth, construction inflation averages about 8%.

Nonresidential buildings inflation has average 3.7% since the recession bottom in 2011. It has averaged 4.2% for the last 4 years.

Residential buildings inflation reached a post recession high of 8.0% in 2013 but dropped to 3.4% in 2015. It has averaged 5.8% for the last 5 years.

Although inflation is affected by labor and material costs, a large part of the change in inflation is due to change in contractors/suppliers margins.

When construction volume increases rapidly, margins increase rapidly.

Construction inflation can be very different from one major sector to the other and can vary from one market to another. It can even vary considerably from one material to another.

Note: The post you’ve reached here was originally written in Jan 2016. For the latest information follow this link to the newest post on Inflation.

Thank You. edz

Jan. 31, 2016

Construction inflation for buildings in 2016-2017 is quite likely to advance stronger and more rapidly than some estimators and owners have planned.

Long term construction cost inflation is normally about double consumer price inflation. Construction inflation in rapid growth years is much higher than average long-term inflation. Since 1993, long-term annual construction inflation for buildings has been 3.5%/yr., even when including the recessionary period 2007-2011. During rapid growth periods, inflation averages more than 8%/yr.

For the period 2013-2014-2015, nonresidential buildings cost indices averaged just over 4%/yr. and residential buildings cost indices average just over 6%/yr. I recommend those rates as a minimum for 2016-2017. Some locations may reach 6% to 8% inflation for nonresidential buildings but new work in other areas will remain soft holding down the overall average inflation. Budgeting should use a rate that considers how active work is in your area.

Infrastructure projects cost indices on average have declined 4% in the last three years. However, infrastructure indices are so unique that individual specific indices should be used to adjust cost of work. The FWHA highway index dropped 4% in 2013-2014 but increased 4% in 2015. The IHS power plant cost index gained 12% from 2011-2014 but then plummeted in 2015 to an eight year low. The PPI industrial structures index and the PPI other nonresidential structures index both have been relatively flat or declining for the last three years.

These infrastructure sector indices provide a good example for why a composite all-construction cost index should not be used to adjust costs of buildings. Both residential and infrastructure project indices often do not follow the same pattern as cost of nonresidential buildings.

Anticipate construction inflation of buildings during the next two years closer to the high end rapid growth rate rather than the long term average.